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FTSE starts on back foot, though Tesco gives a little help

Published: 21:27 21 Jul 2014 AEST

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Geopolitical worries remain a weight on London’s blue-chip shares as the FTSE 100 began the new week on the back foot, down 22 points or 0.33% trading at 6,727.

Sentiment remains uneasy amid the uncertainties in the wake of the plane crash in the Ukraine and the apparent escalation of violence in Gaza.

On the corporate front, a 2% rise in Tesco's (LON:TSCO) share price is salt in the wound for boss Philip Clarke, who is now headed for the checkout after an undistinguished period in charge of Britain’s largest retailer.

He will leave in October, making way for Dave Lewis, who has been recruited from the consumer brands giant Unilever (LON:ULVR).

It is the first time the group has appointed a leader from outside the business. Clarke took over from Sir Terry Leahy in 2011 and analysts said he was left a difficult legacy, including having to extract the grocer from the US.

However the group has been slow to react to the changing competitive landscape in which discounters Aldi and Lidl have increased their market share. And in fact today’s announcement contained yet another warning as Tesco revealed current trading conditions had been "more challenging" than anticipated.

With an apparent jump in demand, Tesco shares were up 6.4p, 2.2%, at 291p each. 

Marc Kimsey, senior trader at Accendo Markets, described the management change as good news.

“The hapless Phil Clarke never won over the City nor did his achievements (or lack of!) as CEO,” Kimsey said in a note.

“Profit warnings and failed ventures, mainly overseas, proved just how out of his depth he was. Incoming Dave Lewis appears to be a shrewd appointment with successfully executed turnaround operations under his belt, as well as stints in both the States and Asia - territories Tesco have struggled to crack.”

Whilst the promise of new management dominated the thoughts of Tesco’s investors, the ‘read-across’ from the profit warning was felt by rival supermarkets Sainsbury (LON:SRBY) and Morrisons (LON:MRW) – as they fell 1.3% and 2.25% to 320.5p and 174p respectively.

Cigarette firms were another drag on the market after America’s RJ Reynolds was fined US$23bn by a US court, after a widow of a smoker who died of lung cancer won a compensation claim. Reynolds has described the ruling as “grossly excessive and impermissible”, whilst experts believe it is likely that the fine will be reduced – it is however a blow to the tobacco industry.

In London, Imperial Tobacco (LON:IMT) and British American Tobacco (LON:BATS) were down 1.7% and 1% respectively this morning.

BSkyB (LON:BSY), which today announced the acquisition of a majority stake in Love Productions, the maker of hit cooking show ‘Great British Bake-Off’ and documentary ‘Benefits Street’, moved 1.6% lower to 902p.

In the small cap market, Oilex (LON:OXP) soared 36% higher after its latest update on the ongoing testing of the pivotal Cambay 77H well, which has now begun flaring gas and flowing light oil to surface following a successful fracking programme.

The indications thus far are better than expected, though as yet around 40% of water from the fracking has been recovered and full testing won’t take place until it has all ‘flowed back’ which is anticipated in two to three weeks.

Meanwhile, a new ‘polymetallic’ discovery at the Hammaslahti Project in Finland propelled FinnAust (LON:FAM) towards the top of the AIM pile - with the share rising 22% to 2.75p.

Stratex (LON:STI) investors welcomed news that it will acquire a 33.4% stake in fellow AIM mining exploration group Goldstone Resources (LON:GRL) in an all-paper deal worth £1.25mln. The holding will rise to 50.1% with the exercise of warrants and it will receive two seats on the restructured Goldstone board. Stratex was up 8% at 3.78p.

Wildhorse Energy (LON:WHE, ASX:WHE) has extended the closing date for its previously announced rights issue offer to raise around AS1.435mln by 14 days to August 13 this year to give more time to shareholders. The firm is offering one share for every two held at A$0.007 a share. Wildhorse shares were unchanged at 0.45p each.

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